Meggitt buys composites division of EDAC for $340m

LONDON (ShareCast) - (ShareCast News) - Engineering group Meggitt (Other OTC: MEGGF - news) has agreed to acquire the composites division of EDAC from Greenbriar Equity Group and other associated sellers for $340m, or £219m in cash. The business produces highly-engineered aerospace components for jet engine and airframe applications, with over 85% of revenues in civil aerospace composites.

Revenues in 2015 are expected to be $104m and the purchase price, adjusted to exclude the $25m present value of the tax asset acquired with the business, implies a multiple of 12.5x 2016 estimated earnings before interest, tax, depreciation and amortisation.

The transaction will be financed by the previously announced debt facilities which are being increased to $600m and is expected to be accretive in year one with a targeted net cost synergy run rate exceeding $6m by the end of year three.

Chief executive Stephen Young said: "This business is a rare, scale player in civil engine and other composite parts. Like the complementary acquisition of the advanced composites businesses of Cobham (Other OTC: CBHMF - news) for which the completion process is well underway, this decisively moves our composites strategy forward, and positions us strongly in this key growth area." As a result of the transaction, which is conditional on regulatory clearance and expected to complete by the end of 2015, and in order to retain flexibility for further bolt-on acquisitions, the company said it has decided to suspend the buyback programme for the remainder of the financial year.

Window of opportunity for M&A According to analysts at Cavendish, "The postponement of the company's planned share buy-back suggests a window of opportunity for rapid expansion supported by cheap debt, which may potentially benefit from the delayed rise in US interest rates keeping a lid on the dollar." Philip Barker, Partner and Head (Other OTC: HEDYY - news) of Industrials at Cavendish Corporate Finance, said:"Meggitt's move to acquire EDAC comes only six weeks after the company agreed to buy Cobham's advanced composites business for $200m and is another signal of the dynamic nature of the UK's aerospace and defence industry, which is the 2nd largest globally." Barker placed the transaction in the context of the industry trend towards supply chain consolidation with the major players looking to achieve greater economies of scale.

That was particularly so in the commercial aviation segment given the long-term trend towards reduced defence spending in Western countries - as illustrated by Cobham's acquisition of Aeroflex last year.